SentinelOne (NYSE:S) used to be a story about how fast sales could grow. Over the past five years they rose about 60.83% a year. Last quarter, revenue grew 21% to $292 million, and the adjusted operating margin reached 10%, up from 2% a year earlier. The company was one of the names in our recent ranking of 13 Best Low Priced Growth Stocks to Invest In Right Now.
But a company changing its story has to convince investors the new one is worth the price. Can a cybersecurity company growing more slowly earn enough to justify a valuation far above its sector?
CEO Tomer Weingarten said the quarter showed strong progress across the business and that customers are adopting more of the platform. CFO Sonalee Parekh said it set a record for profitability. The company raised its full-year outlook and now expects adjusted operating income of $124 million to $128 million.
AI and Cloud Security Are the New Bet
SentinelOne began in endpoint protection and has pushed into cloud and AI security, and IDC named it a leader among endpoint vendors this month. It also extended its threat-hunting service to Amazon Web Services, Microsoft Azure, and Google Cloud. Those moves aim to win a larger share of each customer’s security budget, and customers paying at least $100,000 a year grew 13% to 1,715. Larger rivals remain the standing risk, because they compete for the same buyers. If you’re looking for more cybersecurity stocks, check out 10 Best Cybersecurity Stocks to Buy According to Analysts.
The company recently sold $1.25 billion of zero-interest convertible notes due 2031 and plans to spend $150 million of the proceeds on buybacks. It says the rest can go to acquisitions or other uses. The notes convert at a price about 30% above where the stock traded when the deal priced, so dilution matters only if the shares climb well past that level.
Is The Price Right?
At 67.57 times estimated fiscal 2027 adjusted earnings, SentinelOne trades far above a sector median of 21.01. It sits well below its own five-year average of 367.87, though that average was built on profits that were tiny. Analysts expect adjusted earnings per share to grow 59.69% for the year ending in January.
Expected growth explains part of the premium, because a stock priced far above its sector needs earnings to rise much faster. The multiple also rests on adjusted earnings, so any gap between adjusted and GAAP results matters to the price. If you own the stock, you are paying for a profit surge that analysts forecast but that GAAP results have not yet shown. For investors looking for cheaper AI exposure, our list of 10 Undervalued AI Stocks to Buy Now covers more names.
SentinelOne’s next test is the report for the quarter that ends this month, where management has guided to $38 million to $40 million of non-GAAP operating income. If margins keep climbing while growth holds near its recent pace, the price has support. If either slips, the multiple has little to lean on.
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This article is originally published at Insider Monkey.
